PM dares Abbott to support NDIS levy

Prime Minister Julia Gillard has changed her plans just hours after announcing a tax increase to fund her national disability insurance scheme, saying she will put the legislation to parliament before the election if the Coalition will support it.

Ms Gillard changed tactics after Opposition Leader Tony Abbott, despite railing against a tax rise on Tuesday, repeatedly declined to rule out supporting it on Wednesday.

Labor on Wednesday morning confirmed it would legislate for a 0.5 percentage point increase in the Medicare levy to 2 per cent from July 2014 to help fund the NDIS if Labor won the election.

Mr Abbott
reiterated that the best way to fund the scheme would be from general revenue but said this would require a strong economy. That, in turn, required lower taxes, less regulation and higher productivity, he said.

Prime Minister Julia Gillard said she would take the tax increase to help fund the NDIS, which will hit everyone who earns above the tax-free threshold of $18,200, to the September 14 election.
Photo: Andrew Meares

But he would not give a straight answer when pressed on whether he supported the Medicare levy increase.

He called on the government to outline the budget cuts that would supply the remainder of the funding for the NDIS and dared Ms Gillard to legislate for the levy increase before the election.

Ms Gillard responded by saying: “If you are prepared to support the [increase], I will bring it forward immediately."

Otherwise, Ms Gillard said she would stick with the original plan to take the tax increase, which will hit everyone who earns above the tax-free threshold of $18,200, to the September 14 election.

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This would make her the first prime minister to go to an election seeking a mandate for a tax increase since
John Howard
went to the 1998 poll with the GST as his signature policy.

Under the changes announced on Wednesday, average wage earners will be slugged more than $350 extra a year to help fund the NDIS.

Although the NDIS does not require full funding until 2017, when the trials are finished, Ms Gillard said the extra revenue – about $3.3 billion in 2014-15 and $20.4 billion between 2014-15 and 2018-19 – would be set aside in a special fund that could not be used for any purpose other than the NDIS.

One quarter of the money raised will be given to the states as $9.7 billion grants over 10 years to help them meet their share of the contribution to the scheme, which will cost an estimated $15 billion a year by the end of the decade.

Levy ruled out previously

Ms Gillard has previously ruled out a tax increase to fund the NDIS but said she had changed her mind for three reasons: tax revenue was lower than forecast; the “dimensions of the fiscal ask’’ of the states and territories was too great; and calls from the disability sector “have been loud and clear" for peace of mind and security of funding.

She acknowledged it was not an easy decision to slug “millions of Australians’’ with a tax hike before an election and asked people to consider the national good.

She said an average worker on $70,000 would “be asked to contribute a dollar a day’’ as a result of the impost.

Somebody earning $150,000 would have to pay an extra $750 a year.

Company tax rise is different: Abbott

Mr Abbott said there was “a world of difference" between the Medicare levy increase and his proposal to increase by 1.5 percentage points the company tax for the largest 3200 businesses to fund his paid parental leave scheme.

His levy would affect one in 200 business whereas the Medicare levy would hit millions of taxpayers, he said.

Ms Gillard had said the government would not legislate until after the election because she needed to seek a mandate, and the levy didn’t need to be dealt with until after the poll.

This would mark a sharp election difference between the government and the Coalition, similar to the cuts to superannuation the government announced in April, the legislation for which will not be presented until after the election and only if Labor wins.

The levy will raise just 40 per cent of the extra $8 billion a year the $15 billion NDIS will need when fully operational. The remainder will be found through structural savings to the budget.

Disabilities Minister
Jenny Macklin
scotched media speculation that the government would target the ballooning disability support pension scheme to help find savings.

‘The right thing to do’: Newman

Queensland Premier Campbell Newman, who last year urged Ms Gillard to consider a levy, applauded the announcement.

“I think it is the right thing to do," he told 4BC Radio. “We need to be grown up about this. Australians have said that they want this scheme, well it has to be paid for somehow.

“So to that extent I’m not going to knock the Prime Minister for making this decision.

“I think we need to at least support this, because it really is about providing the money that is required to fund this scheme."

Queensland is now likely to fully commit to the scheme, joining South Australia, the ACT and NSW.

Productivity Commission chairman Peter Harris on Wednesday backed the government’s planned use of a levy to fund the scheme as it would be a sustainable source of long-term funding.

“I think a levy is a reasonable idea in the circumstances," Mr Harris told The Australian Financial Review in an exclusive television interview on Wednesday.

Mr Harris signalled that allocating funds for the scheme from consolidated revenue would undermine the sustainability of the reform.

“We do this as an insurance-type arrangement and as somebody wisely observed the other day, you pay a premium for insurance," he said.

“The important thing is a sustainable funding source. We’re providing, in a scheme like this, a very important addition to social policy support.

Chaney raises revenue concerns

On Tuesday night,
Michael Chaney
, the government’s Chief International Education Adviser and chairman of
Woodside Petroleum
and
National Australia Bank
, said leaders needed to be objective as they looked to fund programs like the NDIS.

“There are many causes that people would like covered and I don’t think many people in the community would deny the worthiness of that cause. The question is whether these things can be paid for," Mr Chaney told the ABC’s Lateline program.

“My concern is that announcements are made about new programs on the assumption revenues would be forthcoming and then the discovery revenues won’t be forthcoming and having to scramble to make up the difference."

Mr Chaney said the taxation system and fiscal outlook need to be reviewed as Australia considered how sustainable revenues and debt levels were.